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Raise the Gas Tax, Reduce the Payroll Tax

Time's Michael Kinsley explains why now is the perfect time to introduce a revenue-neutral gas tax, with the revenue used to lower the payroll.

"This idea always comes up and never goes anywhere. That's partly because of our general loathing of taxes and suspicion of Washington

But a couple of things are different now. First, we have experienced the high energy prices that people in most of the rest of the world already live with, and we know we can live with them too. Four-dollar gasoline is no longer unthinkable.

Second, this is the perfect moment for the other part of many proposals for an energy tax, which is to give the money back to people by lowering the payroll tax. The payroll tax, or FICA, collects about 15% of your wages or salary - half from you and half from your employer We could cut the FICA tax by more than half.

FICA is, in effect, a tax on job creation. It applies to the very first dollar earned by a minimum-wage worker, but most of it tops out at an annual income of about $100,000 and doesn't apply at all to income from investments. For most Americans holding jobs, FICA now takes a bigger chunk of their income than the income tax itself. And yet it rarely enjoys the tender concern of tax-cutting Republicans, who prefer to concentrate on tax breaks for capital gains."

Comments

Interesting Timing

I hope the link works. However, if it does not, the article is an opinion piece by Arthur Laffer (of Laffer curve fame), arguing vehemently against a gas tax EXCEPT in the case where it would used to offset income or payroll taxes (or even a carbon tax). When left and right agree, it's either a very good idea, or we (as citizens) are about to get fleeced (I'll go with good idea in this case because both Kinsley and Laffer don't work for the federal government at the moment). My quick thoughts on Kinsley's idea is that a reduction in payroll taxes (as opposed to income taxes) would be a great vechicle to get younger folks off the ticking social security time bomb without gutting our current obligations to the retired. I hope it gains some traction.